Housing and Real Estate Finance in the Middle East And North Africa Countries
World Bank
Download Document| Date Published | 2011 |
| Version | |
| Primary Author | Oliver Hassler |
| Other Authors | |
| Theme | Legal Framework for Housing Finance , Property Rights and Registration, Regulation and Supervision of Housing Finance Systems, Housing Finance Subsidies, Housing Finance and the Economy |
| Country | Algeria |
Abstract
Real estate investment is a key contribution to economic growth, household welfare and urban development. Construction is one of the sectors with the most impact on the economy. It deepens and makes the financial system more efficient by helping to mobilize savings, expand access and reduce informal sources of finance. Financing real estate investments, however, is challenging. Housing is made affordable by a robust lending system that can facilitate long-term transactions, spread large investment costs, and use fixed interest rates for stability purposes. These features are not present in most emerging economies and are difficult to build. Without such a system, however, lending remains short term and restricted. Real estate lending, including commercial and development investments, can destabilize the financial system, particularly if linked to cyclical and sometimes speculative market risks, as demonstrated by the recent global financial crisis. MENA lags behind other regions in making market resources available for real estate investment. A tradition of heavy state intervention, a dependence on oil wealth, macro economic instability, and weak financial infrastructure has hindered financial system development in the region. However, growing housing needs, economic liberalization and sounder economic contexts have converged to spark new developments in markets resources in the past decade. In spite of the small size of the housing and real estate finance sector in MENA, real estate bubbles risk parts of the banking system. These risks must be addressed when promoting real estate finance mechanisms to ensure that their development is sound and sustainable. This paper is organized as follows. The second section will provide an overview of real estate finance markets, benchmark their development against international references and briefly analyze their dynamics with other markets, particularly the real estate market. Section 3 assesses the main components of the mortgage market‘s infrastructure in the region. Section 4 overviews lending market structure, and examines the evolving role of governments. The report analyzes real estate risk through the experience of the Dubai ?bubble? and the robustness of prudential frameworks in section 5. Section 6 considers funding constraints and asset liability management issues, and section 7 gives a succinct overview of policies designed to expand the access of lower income groups to housing finance. The paper concludes with the policy implications of these various analyses presented in section 8.